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Top commodity trading houses line up for Iran's return to market

Tue, Apr 21, 2015 - 8:08 AM

The world's largest commodity trading houses are first in line to profit from the much expected return of Iran to global markets as Tehran and Washington enter into the final three-months of nuclear talks.

PHOTO: BLOOMBERG

[LONDON] The world's largest commodity trading houses are first in line to profit from the much expected return of Iran to global markets as Tehran and Washington enter into the final three-months of nuclear talks.

While the global oil industry has been seen as the biggest beneficiary of a thaw, commodities traders including Cargill, Glencore, Vitol, Trafigura Beheer and Louis Dreyfus Commodities have a long history in Iran, helping to export its oil and import daily basics like gasoline, wheat and rice.

The US and European sanctions, designed to stop oil and gas trading, are also limiting the traders' ability to sell food commodities because of banking and shipping restrictions. With a population of almost 80 million and the prospect of strong economic growth once sanctions are lifted, Iran offers one of the world's biggest trading opportunities.

"We like other people have talked to the Iranians," Vitol CEO Ian Taylor said in an interview. "They used to be major players in the markets, but obviously none of us will do anything unless sanctions are actually lifted." Iran is not only a large crude oil and fuel oil exporter, but has been historically a sizable importer of gasoline, and it is among the world's top four buyers of wheat, barley and rice, and one of the ten largest importers of raw sugar.

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"The whole industry is looking at the talks with Iran," Swithun Still, director of Solaris Commodities SA, a Switzerland-based grain trader, said in an interview. "If the sanctions are lifted, commodities would be the first thing that would move."

The importance of Iran to grain traders is such that Cargill and Dreyfus have both employed lobbyists in Washington to press the issue, according to US Senate disclosures. Seaboard Corp, a US-based conglomerate that is a top rice trader, and a smaller competitor Phoenix Grain also used lobbyists.

The trading houses largely stopped dealing with Iranian oil and refined products in 2012 and 2013 after the US and Europe introduced their most recent set of sanctions. Before, Vitol, Trafigura and Glencore were regularly among the top five suppliers of gasoline to Iran, according to industry estimates.

The trade of food commodities is exempted from sanctions and has continued.

Glencore, for example, sold agricultural commodities worth US$162 million last year to Iran, according to public disclosures. But that's only a quarter of the US$659 million the trading house exported two years ago, as grain traders find it increasingly difficult to supply Iran with food commodities due to banking and shipping restrictions.

Now, commodity trading executives say they are again on the look out for Iran opportunities.

"Clients have been inquiring about the opportunities, there is a lot of hope they will be able to jump back into Iran," said Erich Ferrari, whose Washington-based firm Ferrari & Associates has lobbied the US government on behalf of commodities traders on Iran.

The re-start of the Iranian business is, nonetheless, some way off. Mr Ferrari said that some of the optimism is largely "misplaced" because banks would hesitate to provide finance even if the sanctions are lifted. More importantly, the preliminary deal reached by Iran, on one side, and the US, France, the UK, China, Russia and Germany needs to be made firm.

Neither side has provided details on when the sanctions would be lifted other than saying it will be after a deal is implemented and verified by international inspectors, but it's considered unlikely before early 2016.

Until now, Iran has tried to ease the pain of the sanctions on commodities trade by negotiating old-fashioned barter deals with countries including India. It also has boosted domestic production of gasoline, although the quality of the product has been poor, leading to pollution in major cities.